Question 1

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity,500,000 shares of stock outstanding,and a price/book value ratio of 4?

Accepted Answer

A)  $2.50 
B)  $10.00 
C)  $20.00 
D)  $40.00 
A)  $2.50 
B)  $10.00 
C)  $20.00 
D)  $40.00

Question 2

Reinvesting earnings into a firm will not increase the stock price unless:

Accepted Answer

A)  the new paradigm of stock pricing is maintained. 
B)  true depreciation is less than reported depreciation. 
C)  the firm's dividends are growing also. 
D)  the return on the new investments exceeds the firm's required return. 
A)  the new paradigm of stock pricing is maintained. 
B)  true depreciation is less than reported depreciation. 
C)  the firm's dividends are growing also. 
D)  the return on the new investments exceeds the firm's required return.

Question 3

Market efficiency implies

Accepted Answer

A)  that investors are irrational. 
B)  that there is no point to buying common stocks. 
C)  that consistently superior performance is very difficult even for professional investors. 
D)  that there are no taxes. 
A)  that investors are irrational. 
B)  that there is no point to buying common stocks. 
C)  that consistently superior performance is very difficult even for professional investors. 
D)  that there are no taxes.

Question 4

If The Wall Street Journal lists a stock's dividend as $1,then it is most likely the case that the stock:

Accepted Answer

A)  pays $1 per share per quarter. 
B)  paid $.25 per share per quarter for the past year. 
C)  paid $1 during the past quarter, with no future dividends forecast. 
D)  is expected to pay a dividend of $1 per share at the end of next year. 
A)  pays $1 per share per quarter. 
B)  paid $.25 per share per quarter for the past year. 
C)  paid $1 during the past quarter, with no future dividends forecast. 
D)  is expected to pay a dividend of $1 per share at the end of next year.

Question 5

If markets are efficient,when new information about a stock becomes available,the price will:

Accepted Answer

A)  remain unchanged because it already reflects this information. 
B)  accurately and rapidly adjust to include this new information. 
C)  adjust to accurately reflect this new information over the course of the next few days. 
D)  most likely increase because all new information has a positive effect on stock prices. 
A)  remain unchanged because it already reflects this information. 
B)  accurately and rapidly adjust to include this new information. 
C)  adjust to accurately reflect this new information over the course of the next few days. 
D)  most likely increase because all new information has a positive effect on stock prices.

Question 6

A stock is expected to pay dividends of $1.20 per share in Year 1 and $1.35 per share in Year 2.After that,the dividend is expected to increase by 2.5% annually.What is the current value of the stock at a discount rate of 14.5%?

Accepted Answer

A)  $11.29 
B)  $10.87 
C)  $12.07 
D)  $13.39 
A)  $11.29 
B)  $10.87 
C)  $12.07 
D)  $13.39

Question 7

Research indicates that the correlation coefficient between successive days' stock price changes is:

Accepted Answer

A)  quite close to +1. 
B)  quite close to 
C)  quite close to zero. 
D)  directly related to the stock's beta. 
A)  quite close to +1. 
B)  quite close to 
C)  quite close to zero. 
D)  directly related to the stock's beta.

Question 8

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share,has an expected dividend of $2.50,and a required return of 20%?

Accepted Answer

A)  $0 
B)  $6 
C)  $8 
D)  $10 
A)  $0 
B)  $6 
C)  $8 
D)  $10

Question 9

Many professional investors attempt to beat the market by buying index funds.

Accepted Answer

A) True 
 B)False

Question 10

If security prices follow a random walk,then on any particular day the odds are that an increase or decrease in price is about equally likely.

Accepted Answer

A) True 
 B)False

Question 11

Your broker suggests that you can make consistent,excess profits by purchasing stocks on the 20th of the month and selling them on the last day of the month.If this is true,then:

Accepted Answer

A)  the market is only semi strong-form efficient. 
B)  the market violates even weak-form efficiency. 
C)  insiders will be the only investors to profit. 
D)  prices follow a random walk. 
A)  the market is only semi strong-form efficient. 
B)  the market violates even weak-form efficiency. 
C)  insiders will be the only investors to profit. 
D)  prices follow a random walk.

Question 12

Other things equal,a firm's sustainable growth rate could increase as a result of:

Accepted Answer

A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D)  increasing total assets. 
A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D)  increasing total assets.

Question 13

The required return on an equity security is comprised of a:

Accepted Answer

A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield. 
A)  dividend yield and ROE. 
B)  current yield and a terminal value. 
C)  sustainable growth rate and a plowback yield. 
D)  dividend yield and a capital gains yield.

Question 14

What price would you pay today for a stock if you require a rate of return of 13%,the dividend growth rate is 3.6%,and the firm recently paid an annual dividend of $2.50?

Accepted Answer

A)  $27.55 
B)  $30.28 
C)  $26.60 
D)  $31.37 
A)  $27.55 
B)  $30.28 
C)  $26.60 
D)  $31.37

Question 15

If the stock prices follow a random walk,successive stock prices are not related.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true for a firm having a stock price of $42,an expected dividend of $3,and a sustainable growth rate of 8%?

Accepted Answer

A)  It has a required return of 15.14%. 
B)  It has a dividend yield of 7.35%. 
C)  The stock price is expected to be $45 next year. 
D)  It has a capital appreciation rate of 7.14%. 
A)  It has a required return of 15.14%. 
B)  It has a dividend yield of 7.35%. 
C)  The stock price is expected to be $45 next year. 
D)  It has a capital appreciation rate of 7.14%.

Question 17

An excess of market value over the book value of equity can be attributed to going concern value.

Accepted Answer

A) True 
 B)False

Question 18

A stock currently sells for $50 per share,has an expected return of 15%,and an expected capital appreciation rate of 10%.What is the amount of the expected dividend?

Accepted Answer

A)  $2.50 
B)  $2.75 
C)  $3.00 
D)  $3.50 
A)  $2.50 
B)  $2.75 
C)  $3.00 
D)  $3.50

Question 19

A company with a return on equity of 15% and a plowback ratio of 60% would expect a constant-growth rate of:

Accepted Answer

A)  4%. 
B)  9%. 
C)  21%. 
D)  25%. 
A)  4%. 
B)  9%. 
C)  21%. 
D)  25%.

Question 20

Which statement is correct?

Accepted Answer

A)  It is much easier to judge whether the absolute level of stock prices is correct rather than whether their relative levels are correct. 
B)  It is much easier to judge whether relative stock prices are correct than to judge whether their absolute level is correct. 
C)  Most tests of market efficiency are concerned with the absolute level of stock prices. 
D)  If relative prices are correct, then absolute prices must be correct also. 
A)  It is much easier to judge whether the absolute level of stock prices is correct rather than whether their relative levels are correct. 
B)  It is much easier to judge whether relative stock prices are correct than to judge whether their absolute level is correct. 
C)  Most tests of market efficiency are concerned with the absolute level of stock prices. 
D)  If relative prices are correct, then absolute prices must be correct also.

Exam 7: Valuing Stocks

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity,500,000 shares of stock outstanding,and a price/book value ratio of 4?

Reinvesting earnings into a firm will not increase the stock price unless:

Market efficiency implies

If The Wall Street Journal lists a stock's dividend as $1,then it is most likely the case that the stock:

If markets are efficient,when new information about a stock becomes available,the price will:

A stock is expected to pay dividends of $1.20 per share in Year 1 and $1.35 per share in Year 2.After that,the dividend is expected to increase by 2.5% annually.What is the current value of the stock at a discount rate of 14.5%?

Research indicates that the correlation coefficient between successive days' stock price changes is:

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share,has an expected dividend of $2.50,and a required return of 20%?

Many professional investors attempt to beat the market by buying index funds.

If security prices follow a random walk,then on any particular day the odds are that an increase or decrease in price is about equally likely.

Your broker suggests that you can make consistent,excess profits by purchasing stocks on the 20th of the month and selling them on the last day of the month.If this is true,then:

Other things equal,a firm's sustainable growth rate could increase as a result of:

The required return on an equity security is comprised of a:

What price would you pay today for a stock if you require a rate of return of 13%,the dividend growth rate is 3.6%,and the firm recently paid an annual dividend of $2.50?

If the stock prices follow a random walk,successive stock prices are not related.

Which of the following is true for a firm having a stock price of $42,an expected dividend of $3,and a sustainable growth rate of 8%?

An excess of market value over the book value of equity can be attributed to going concern value.

A stock currently sells for $50 per share,has an expected return of 15%,and an expected capital appreciation rate of 10%.What is the amount of the expected dividend?

A company with a return on equity of 15% and a plowback ratio of 60% would expect a constant-growth rate of:

Which statement is correct?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters

Your broker suggests that you can make consistent,excess profits by purchasing stocks on the 20^th of the month and selling them on the last day of the month.If this is true,then: